I’ve been wondering about this for months now, and I realize that I’ve posted about it several times already. I can’t help it, though. Haven’t you been asking yourself the same question, even though you’ve probably had it answered several times before? For me it still crossed my mind several times a week, as the Dow Jones Industrial continues to plummet time and time again. Will there ever be an end to what seems like a never-ending downward spiral?

I’m still confident that we’ll bottom out at some point in 2009 (what a miserable conclusion!). I cannot say that I believe the next 6 months will rear the end of this ugly recession, but I hope nonetheless.

Is Now A Good Time To Buy Stocks?

I often find myself tuning my radio to 570 KNRS (Utah’s Dave Ramsey station) on my way home from work. Tonight that very question was asked- is now a good time to buy stocks? Dave’s response was the typical answer we have probably heard again and again. Yes, now is a good time to buy stocks if you’re buying them for long term or semi-long term purposes; that is to say that if you’re not buying them for the express purpose to hold onto them for the next 5 to 10 years, now is not a good time to buy. In fact, it’s never a good time to buy if that’s the case (unless, of course, you’re a trained “day-trader” of some sort)!

To put it very concisely, Dave’s advice was this: buy now (if you can) for the sake of long term investing (5-10 years).

There’s nothing magical or overly-philosophical about that type of advice. Consider the following scenario: Let’s assume you have an extra 15k that you’ll be using in the next 3 years to make a down-payment on your first home. Currently, that money is sitting in your checking account earning nearly nothing in interest, and you want to make your money work for you while you’re waiting to buy. Due to the current credit crisis and the tumbling stock market, you figure that now would be a great time to buy because stocks are “on sale.”

What could potentially happen? According to Dave Ramsey, you shouldn’t buy stocks right now because 3 years doesn’t give the market adequate time to plummet and correct in time to make your investment worth it (from past market statistics, of course). You ought to take that money and stick it into a safe CD of some type or maybe a money market. But how exciting is that? You’re barely beating inflation if you take that approach.

There’s A Good Chance The Market’s Have “Bottomed-out,” Right?

Maybe. Wall Street remains uncertain because the stimulus plan’s effectiveness is uncertain; hence, stocks aren’t getting any healthier. So my gut feeling is that we’ll continually watch the Dow Jones Industrial fall day after day until something clear and concrete is presented to America. Too much is unclear right now.

But what if the markets have “bottomed-out?” Well- if you invested right now, you’d be in great shape! The problem is that you can’t possibly predict market tops and bottoms.

Today as I was lamenting to a friend about the difficulty involved in making these decisions, and he just laughed at me and told me to “knock it off.” Just stop worrying about it! You can’t live life day after day wondering if you should have invested yesterday or two weeks ago.

What Dave Ramsey says about investing is true. All we have to make decisions based on is our gut and market statistics. And both of those things are telling me to keep buying, and that’s what I’m going to do.

5 Responses to “Is Now A Good Time To Buy Stocks?”

I am not sure whether now is the right time to buy, definately in a better situation than we were a few years ago, but I am curious as to whether we will drop more and more. We are definately not out of this gloomy situation and those people that are just managing to hang on right now will surely influence more of a downturn. I think the best thing people can do is to make money by your own means and concentrate and making yourself successful.

I agree that it is never wise to buy stocks unless you are not going to need your money back for 3-5 years. However, you don’t need to worry about whether the market has bottomed out. You’re not buying the whole market; you’re buying one stock.

Look to see if the stock is undervalued (they’re making money, or losing less money than last year, but the stock price has been falling). The more undervalued it is, the better. Not all stocks will recover, but sooner or later people will realize that the company is a good one, and it will be valued as it is supposed to be. Then you can sell it.

@Kris: That’s true. And I guess what I meant to say when I said “stocks” was actually predominantly stock-based mutual funds or index funds. But you’re right- if you feel that a company is great and the stock is undervalued right now, buy it!

I would agree now is a good time to buy if you have a long-term time horizon. What everyone should be doing now is reviewing their current holdings and rebalancing their portfolio so when the stock market does turn around you have positioned yourself to take advantage of it.